The next trillion barrels

Speech by Lee Tillman, North Sea Production manager,
ExxonMobil International Limited,
at the SPE Offshore Europe Oil & Gas Conference in Aberdeen

10 September 2009

NOTE: This presentation includes forward-looking statements. Actual future conditions (including economic conditions, energy demand, and energy supply) could differ materially due to changes in technology, the development of new supply sources, political events, demographic changes, and other factors discussed herein (and in Item 1 of ExxonMobil’s latest report on Form 10-K). This material is not to be reproduced without the permission of Exxon Mobil Corporation.

Good afternoon ladies and gentlemen. Thank you to our conference hosts SPE for the invitation to participate.

Each year, Offshore Europe provides a unique opportunity for those of us in the industry to come together and share insights and ideas on the critical issues that we face.

Today, I will briefly address the topic of the ‘Next Trillion Barrels’. I will share with you ExxonMobil’s perspective on the outlook for energy between now and 2030; the global oil resource base; our industry's investment challenge and ExxonMobil's future plans in this area; and our views on the role of technology in addressing current and future energy challenges.

As an international oil and gas company, we view the future with optimism. We believe our offering to resource holders is attractive - a robust business model that has stood the test of time; strong corporate governance: well integrated systems and high standards of operational excellence with a strong focus upon safety, health and the environment; the capacity to identify and deploy best practices on a global scale; and industry leading technology research, development and deployment.

Our approach to upstream capital investment remains disciplined and focused on the long term. We seek high quality, large scale resources; partnerships built upon shared strategic goals, close co-operation and a shared equity basis for commercial agreements; the ability to deploy our proven strength in operations excellence; and regulatory and fiscal stability.

Each year, ExxonMobil produces a global Outlook for Energy. This outlook is based upon an ongoing assessment of approximately 100 countries, 15 demand sectors and 20 fuel types. It is underpinned by our own economic and population projections, our expectations for energy-efficiency gains from the deployment of advanced technologies and adoption of better energy-management practices and considers input from a wide variety of third-party organistions, such as the International Energy Agency and the U.S. Department of Energy. The results of this comprehensive study provide a foundation for ExxonMobil’s business planning.

This year’s report focuses on energy demand to the year 2030. Overall, it examines key drivers for rising demand and the way this demand will be met by the various available energy sources, including fossil fuels, nuclear power and renewable energies.

Overall, we anticipate that energy demand will grow significantly over the time period covered. Today, the world uses approximately 245 million barrels per day of oil-equivalent energy to fuel transportation, generate electricity, run farms and factories, heat and cool homes, and more. Even with the recent global economic slowdown, our long term outlook remains robust—the world will need significantly more energy in the future to support continued economic and social development.

One of the consequences of this increase in demand will be a rise in GHG emissions. While not the subject of today's presentation, ExxonMobil recognises the risks associated with climate change and is working to improve energy efficiency and minimise emissions within our own operations. Further, we are collaborating with academic institutions, automotive manufacturers and other organistions to improve energy efficiency and to develop low carbon technologies. From on-board hydrogen generation to high performance films for lithium ion batteries to next generation algae-based biofuels, ExxonMobil is investing in breakthrough technologies to provide economically viable, scalable energy solutions to address the risks posed by GHG emissions.

By 2030, with projected economic and population growth, the world’s total energy demand is expected to be approximately 35 per cent higher than it was in 2005, despite significant gains in energy efficiency. Our forecast is that energy-intensity gains to 2030 will average 70 per cent faster improvement per year compared to historical trends. Compared to 2005 levels, these intensity gains translate to energy savings of approximately 170 MBDOE by 2030 — about double the corresponding growth in demand.

When viewed as a global total, the world’s energy mix is highly diverse. Non-hydrocarbon sources will grow rapidly; by 2030, nuclear will be the fourth-largest fuel source, behind oil, natural gas and coal. Wind, solar and biofuels will grow at just over nine per cent per year on average, the highest growth rate of all fuels. Hydro and geothermal will also grow, but they are limited by natural availability.

Oil and natural gas combined provided almost 60 per cent of total global energy in 2005. When coal is added, fossil fuels provide approximately 80 per cent of world energy. By 2030, oil will remain the largest source of energy supply at approximately 34 per cent. Natural gas will grow the fastest of the fossil fuels and will surpass coal as the second-largest energy source, accounting for nearly 25 per cent. Coal will grow slowly, at 0.6 per cent per year, and will see its share of the energy mix shrink by 2030.

With that projected growth in energy demand, the good news is that substantial resources remain. The United States Geologic Survey (USGS) results going back to 1986 estimates total recoverable conventional oil. These estimates have grown over time from below two trillion barrels in 1984 to well above three trillion barrels in 2000, thanks in large part to new technologies that allow us to locate and produce additional resources.

These numbers are huge, so a little perspective helps. Our own projections show that, since the mid 19th century when our industry started, only about one trillion barrels have been produced to date.

Approximately two trillion barrels of conventional recoverable reserves remain – twice as much as all the oil produced in the past.

Now if we add estimated frontier resources, like heavy oil and shale oil, this total recoverable volume grows to more than four trillion barrels. With continuing improvements in technology, this estimate is also likely to increase further over time.

Substantial gas resources also remain and are further supported by frontier resources such as shale gas, tight gas and coal bed methane and by 2030, LNG supplies will triple.

In light of this, we see ample resources available to meet the growing demand for oil and gas through 2030.

Demand is growing and supply is available but what about the investment to develop and produce these resources? When we attempt to quantify in dollars the challenge of investing to meet the energy demand growth, the numbers are staggering.

The International Energy Agency predicts that the total investment needed in the world’s energy sector from 2007 to 2030 is about $26 trillion. Spending devoted to oil and gas investment alone is estimated to be about 45 per cent of this total or close to $500 billion per year.

Looking at ExxonMobil's recent investment history, our disciplined pursuit and selection of attractive investment opportunities has resulted in us investing almost $100 billion in our business over the five-year period 2004 - 2008. In 2008, capital and exploration expenditures were just over $26 billion, an increase of 25 per cent from 2007.

Irrespective of the price environment, we have a large inventory of projects underway and others under development. Actual spending in a given year will, of course, vary depending on the pace and progress of each project; however, we are anticipating an overall investment profile of approximately $125 billion between 2008 and 2012.

As these figures show, the oil and gas industry continues to be about managing risks—geopolitical, economic, technical and subsurface. Today, a greater number of significant new oil and gas resources are in remote areas with challenging operating environments - we believe the skills and capabilities mentioned in my introduction are more relevant today than ever before.

The development and global deployment of technology will be at the heart of addressing our future energy challenges, whether it is finding improved ways to explore for undiscovered resources, to maximise recovery in more challenging environments (for instance deepwater or arctic drilling), to enhance the efficiency with which we currently use energy or to identify breakthrough low carbon technologies.

Technology is at the heart of ExxonMobil's business and is the cornerstone of project success. As an industry leader in research and development, investing around $1 billion per year in technology (more than $6 billion over the past six years alone despite fluctuations in oil and gas prices), we leverage our internal research centers to identify and develop technology for sustainable competitive advantage. At these centers, engineers, geoscientists, physicists, mathematicians, chemists and others work in cross-disciplinary teams to develop new, proprietary advances in energy technology.

Let me highlight just a few of the proprietary innovations that have been developed and deployed by ExxonMobil.

First, 3D seismic—a workhorse in our industry. Four decades ago, ExxonMobil pioneered 3-D seismic technology, which uses sound waves to form sharp three-dimensional images of underground formations. Now, 3-D seismic technology is standard throughout the energy industry. ExxonMobil employs the latest generation of 3-D technology, coupled with advanced computing, to create detailed images of the world’s oil and gas reservoirs. Today, four-dimensional seismic technology, which compares 3-D seismic surveys from the same field over different points in time, is extending our understanding in complex reservoirs and enhancing recovery.
 
Remote Reservoir Resistivity Mapping, or R3M, developed by ExxonMobil, and uses extremely low-frequency electromagnetic waves to discern resistive deposits – remotely “mapping” undersea oil and gas reservoirs with accuracy. R3M improves our ability to search for oil and gas in hard-to-reach locations such as deep water and has been used successfully to explore off the coasts of West Africa, Brazil, Colombia and Canada as well as in the Gulf of Mexico.

To improve reservoir characterisation, we are developing capabilities in sub-seismic reservoir characterisation to model sediment erosion, transport, and deposition processes that act together to form a reservoir. Results from these process-based models can help create numerical reservoir models with more realistic sedimentary body geometry and property distribution than seismic data alone can supply.

In Colorado’s Piceance Basin, ExxonMobil’s Multi-Zone Stimulation Technology (MZST) has opened up tight gas resources by allowing operators to create fractures in reservoir rock at a more rapid rate than conventional technology so gas can flow more easily and economically. Using MZST and our Fast Drill Process, ExxonMobil is increasing recovery and production rates at Piceance while reducing development costs and our environmental footprint.

ExxonMobil has committed more than $100 million to complete development and testing of an improved natural gas treating technology called Controlled Freeze Zone (CFZ) which could make carbon capture and storage more affordable and significantly reduce greenhouse gas emissions. CFZ is a single-step, cryogenic separation process that freezes out carbon dioxide as a solid and then melts the carbon dioxide such that it is recovered as a high pressure liquid. The process also removes other contaminants, such as hydrogen sulphide. If successful, the process will reduce the cost of carbon dioxide removal from produced natural gas and could be extended to CCS applications.

But it's not just the development of these technologies that brings benefits. Our scale, globalised business model and strong internal networks all ensure that we are able to transfer knowledge and expertise quickly and deploy proven technologies across our international operations.

In conclusion, ExxonMobil is optimistic about the “next trillion barrels” but also realistic about the level of investment, technology and long-term commitment it will require. The challenge of meeting the world’s growing energy demand is massive and complex; however, it is something the energy industry has done successfully for more than 100 years.

And our global economy and modern way of life depend on it, as does the ability of hundreds of millions of people in developing countries to achieve a level of living standards that many in the developed world take for granted.

Thank you and I look forward to your questions during the panel discussion.